The Beauty of Takeover Targets

by Hilary Kramer | June 18, 2013 11:30 am

ExactTarget (ET[1]) was recently acquired by Salesforce.com (CRM[2]) for roughly $2.5 billion, adding up to $33.75 a share in cash–more than a 50% premium from ET’s previous day’s close price. But Saleforce.com wasn’t the only company interested. Oracle (ORCL[3]) and Microsoft (MSFT[4]) also wanted to buy-out the company. This resulted in a very competitive bidding war, and ended up becoming the biggest online-marketing takeover since 2008.

I had actually held ET in my GameChangers service for about six months before the acquisition. Seeing that Exact Target had all the factors to be a takeover target, I kept a close eye on it. When the acquisition was announced, I jumped at the news and locked in a whopping 56% return.

I am always on the look-out for companies like Exact Target, because big acquisitions can mean big profits for the company’s investors. And there have been many takeover targets in both my GameChangers and Breakout Stocks services.

In my Breakout Stocks services, I recommended Presidential Life (PLFE[5]) and Animal Health International (AHII[6]) that resulted in huge gains after their acquisitions were announced.

Presidential Life sells a variety of annuity and insurance products in the United States. Like many other annuity providers, Presidential Life was struggling with the low interest rates that were crimping revenue. But I knew that when rates began to move higher, annuities would be back in demand from the aging population. In the meantime, its main business remained profitable, which helped its tangible book value continue to grow.

We had only held PLFE for two months before it was acquired. Management agreed to be purchased by Bermuda-based Athene Annuity & Life Assurance Company for $14 a share in cash. PLFE popped 37% on the news, and we locked in an amazing 57% profit.

Animal Health International was a great play on global growth since it was in the sweet spot of commodity inflation and agriculture. The company’s customers were also benefiting from rising food prices and spending on the health of their animals.

After management agreed to be acquired by privately-held Lextron, another animal health and feed company, the shares jumped on the news. I alerted my subscribers to take advantage of the movement and we sold AHII to make a huge 69% return.

The same happened in my GameChangers service. Both Qualcomm (QCOM[7]) and Telvent (TLVT[8]) were bought out, and my GameChangers subscribers reaped the benefits.

Qualcommis the preeminent chip maker for mobile phones in the world. The stock was once loved by the Street but was ignored as the company lost market share.

However, I believed that a turnaround had started with Qualcomm’s introduction of its Snapdragon processor, which had all the makings of a game changer. It was a much more powerful processor than the one offered in the iPhone, and cell phone users were responding. I

thought that this would give Qualcomm an opportunity to regain critical market share with its impressive new Snapdragon processor while at the same time lining up other products to replace any revenue they might lose from lower royalties in the future.

And I was right! QCOM was later acquired by Atheros, moving the stock up and allowing us to exit the position with a 62% return.

Telvent is in the information business–collecting, monitoring and analyzing real-time data for companies in the agricultural, energy, transportation and environmental sectors. This information helps companies and governments manage their operations more efficiently, leading to not only lower operating costs but also creating new or improved revenue streams.

But after holding TLVT for less than a year, the company was acquired for $40 a share by Schneider Electric, an energy management company. Also agreeing to the transaction was Abengoa, a Spanish solar power company with a 40% stake in Telvent. I moved quickly, taking advantage of the acquisition and locked in fantastic profits of 61%.

I love a good acquisition, and while I don’t spend my time looking for only takeover targets, I will absolutely jump on a stock if it has strong fundamentals. Sometimes, takeovers are simply a byproduct of finding companies with sound fundamentals.